Starting from October winter crops insurance in Ukraine becomes a burning issue for a few principal players in the agricultural market. We say “a few” as the high cost of this insurance product makes it unaffordable for the majority of companies in this field let alone small farms. The insurance rates are in turn driven by significant risks associated with the agricultural activities and by overall unprofitability of agriculture.
Five main winter crops, i.e. barley, wheat, rape, rye and triticale can normally be covered by insurance in Ukraine against a set of perils including weather risks, fire risks, unlawful acts risks and epiphytoty risks including both diseases and pests. All of the risks are clearly defined by the terms and conditions of each insurance company. Moreover, the best part of them are tied to the quantitative measures defining whether or not damage falls within the category of the insured event. So be aware of that. It also makes sense to offer the amendments to such provisions to protect the interests of the insured. Luckily, many insurers tend to agree to such changes.
So, if you consider insuring your winter crops, you’d have to make up your mind on the following nuances.
1. Period of coverage.
As to the winter crops insurance in Ukraine, the choice is limited to three principle options:
- Autumn and winter coverage only
- Spring and summer coverage only
- Full period of crop’s life cycle
It is recommended that the deductible be tied to the sum insured for every field separately. In such a way you protect yourself against loss of the whole field of crops without being indemnified in case the damage does not exceed the deductible value
Basically the third option is a combination of the first and the second ones. That is why
it guarantees the most extensive coverage. Of course, the price for it is also higher in comparison with each particular one.
2. Amount of losses covered during autumn and winter
- Total loss only coverage with the amount share of the crops damaged accounting for 50 to 70 % of all crops insured. The exact number is stipulated by the agreement. Make sure to choose the insurance company which offers the lesser number.
- Both partial and total loss coverage. The deductible deserve special attention here. With the regular number being defined within the range of 10-40 %, it is recommended that the deductible be tied to the sum insured for every field separately. In such a way you protect yourself against loss of the whole field of crops without being indemnified in case the damage does not exceed the deductible value.
*Notwithstanding any of the above mentioned options you’d want to consider paying for the spring frost risk coverage option prolonging your insurance policy for extra month (from mid-April till mid-May, when the probability of crops damage due to the sudden frosts is the highest).
3. Insurance level during spring and summer.
In this regard you need to choose two parameters from the range offered by the insurance company for the winter crops insurance. Ukraine’s market has them as follows: insurance coverage level and crop unit’s price. The first one stipulates the level of yield which serves as a trigger for the indemnification. This means that if your actual yield turns out to be lesser than the trigger yield, you will be indemnified for the difference between the two parameters. The common range for the insurance coverage level varies from 50 to 80 % with 5 percentage points tick. The price per crop unit can also be specified in the insurance policy upon your discretion. Both parameters have direct influence on the insurance rate.
4. Actual crop yield evaluation method.
A couple of standard methods deserve your consideration in this regard.
- Biological yield approach which implies assessment based on manual picking of some crops a week before the harvesting starts in summer.
- Thrashing yield approach means mechanical harvesting of selected crops during the actual harvest time with further weighing of the grains.
It is recommended to apply the first method if you want to save time and money.
5. Indemnification rate for autumn and winter losses within the framework of the full crop’s life cycle insurance policy.
The choice is to be made with respect to the share of the sums insured which limit the amount of indemnification paid for the losses suffered before the vegetation is renewed in spring. For this aspect of insurance Ukraine’s companies offer 20 or 30 %. The indemnification is usually paid in two halves – the first one being subject to insured event confirmation, and the second – subject to compulsory cultivation of damaged crops or their reseeding.
There is one more nuance that deserves your attention regarding winter crops insurance. Ukraine’s practice stipulates for the sum insured to be calculated differently for autumn/winter and for spring/summer period of coverage.
The sums insured are calculated as follows:
For autumn/winter period:
SI = TAC x Exp, where
SI – sums insured
TAC – total area of crops insured
Exp - expenses for seeding and growing the crops
For spring/summer period of coverage:
SI = TAC x CYI x P, where
SI – sums insured
TAC – total area of crops insured
CYI – crop yield insured
P – price per crop unit.
In its turn,
CYI = CL x AY, where
CL – Insurance coverage level
AY – average crop yield for the last 5 years
To sum it up, it is worth pointing out that winter crops insurance in Ukraine is constantly changing to answer the demands of the companies using this type of coverage. It can also be looked upon as quite a complex insurance product where the advice of the independent consultant or an insurance broker can be priceless.
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